Posted
by
samzenpus
on Thursday December 26, 2013 @09:03AM
from the proceed-with-caution dept.

hypnosec writes "The Reserve Bank of India (RBI) has cautioned users of virtual currencies like Bitcoin, Litecoin, and Dogecoin on the risks associated with them and said that it is looking at the use and trading of these currencies. They noted that there are quite a few risks including: theft of digital wallets that are used to store the digital currency, absence of any frameworks to tackle customer problems, disputes and charge backs; exposure to potential losses because of high volatility in value of the virtual currencies, legal and financial risks, and breach of anti-money laundering laws because of lack of complete information on counterparts in a peer-to-peer anonymous / pseudonymous systems."

In this case, the warning in the letter is a follow-up forward of a warning issued by the Reserve Bank of India (RBI).

Since the RBI is the currency managing bank for the India, and the bank of the Govt. of India, has legitimacy and privileges awarded by the Constitution of India etc. it might be quite all right to take it as the official stand of the Indian financial authorities.

Bitcoin is regulated. There are laws in place for all valuable assets, regardless of whether they're tangible or not. Of course, many folks who "invest" in Bitcoin don't actually understand those laws or even realize that they should try to. They often don't realize that large transfers (regardless of currency) require documentation, they don't know that capital gains often must be reported for taxes, and they often don't bother keeping the documentation that they'll need when the various government authorities start asking questions. The even-more-naive don't even realize that theft or abuse is just as possible with Bitcoin as with cash.

The point of this statement is to remind people that digital currencies are still currencies. You don't get to escape the rules and risks of reality by using quatloos instead of dollars.

Then if you lived in Norway, at least, from what I've read you'd be a tax cheat. A lot of countries in Europe are declaring BTC as asset which means that buyers and sellers are required to participate in VAT collection on every transaction.

...do they pay 15% on it as normal income, or 0% as long term capital gains, or something else entirely?

Realistically, it doesn't matter, as long as you report it (so of course the 0% seems better).

Note that I am not an accountant, I am not your accountant and this is not accounting advice.

The IRS (and any other tax agency) cares mostly about getting their cut. They really don't actually care how much that amount is. You are free to define any activity or income using any applicable definition that you think is appropriate, but note that you may need to redefine it later. If your Bitcoin activities meet the

Primarily because most of the world's governments haven't yet issued guidance as to whether to consider Bitcoin a commodity or a currency for purposes of calculating your taxes.

You might not realize this, but most new tax law works this way. Even once specific laws are made, they're still often ambiguous, and no one really knows what the rules are until after the first couple of court cases are decided. Don't like it? Well, I'd also prefer a flat tax.

The main thing is to report it as some sort of capital gain, to show the intent to comply with the law, and keep in touch with your tax advisor every year as clarity emerges.

We have, and can see all too clearly that the government has held its hand this long solely in an effort to play both sides of the fence.

Sure, they did, in the 1970s currencies were measured against the Gold Standard. Not anymore.

At one time, bank notes in used to actually have a silver strip, and were "exchangeable in gold" from the reserve banks. Coins actually contained silver equivalent to their value. Now it's all just 'legal tender'. The Indian Rupee note, says 'I promise to pay the bearer the sum of X rupees". Notice, value is ascribed by legal declaration, not by weight in gold.

No, that's simply not what a currency is. Never think of a currency as a store of value, but as an aid that makes barter easier. It's a way to measure value, sure, but that's different.

If you want something with intrinsic value, you need to turn your currency into wealth, by which I mean ownership of the means of production. Land, stocks, private businesses, whatever: the only assets with intrinsic value are those which produce something that people want or need. Everything else is mere convention or convenience.

the dollar is backed by "the full faith and credit of the united states government"...yes that means the ability to seize bank accounts and the use of the threat of prison and even guns/bodily harm to get their money to pay its debts.

... the ability to seize bank accounts and the use of the threat of prison and even guns/bodily harm to get their money to pay its debts.

Slashdot is becoming such an interesting place. The level of ignorance and (perhaps deliberate) misunderstanding I see on a daily basis is difficult to put into words. How are we to have a conversation (to say nothing of debate) with a person who has such a poor understanding of the terms involved?

Personally, I don't want a currency with intrinsic value. I want it to have value as a currency only. I do not want the price of my cheeseburger be directly affected by the amount of yellowish (and inedible) metal some guy managed to dig out of the ground this year.

The problem with having a currency that has no "intrinsic" value is that it needs to be issued somehow to individuals. Either it's random, and distributed equally to all individuals, or it's given to favorable parties (like it is now). Not only that, but you need to keep this "issuing" in check, otherwise your currency will quickly be worth diddly.

I have absolutely no idea why you're obsessed about the price of your cheeseburger being constant. Life isn't all sunshine and rainbows, and you can't get dadd

Currencies with intrinsic value have their own problems. They are still subject to price manipulation by those of sufficient wealth (eg, the artificially high price of diamonds), and their value can also be heavily affected by changes in supply and demand for whatever their use is.

Bitcoin has many, many serious problems. That is not one of them. Volatility is, which is why right now the coins are only used as a means of transfering money rather than a long-term store of wealth.

And to provide you some support for manipulation of things with intrinsic value use the Hunt Brothers and Silver Thursday [wikipedia.org]. Silver has many uses as an industrial metal so is usually assumed to have intrinsic value but was heavily manipulated. This is also why I don't believe the radio shills who are pushing silver saying it it cheap now and the point of comparison is the manipulated price in 1980.

Bitcoin et al are far too volatile to be used as a reserve of wealth, and have no intrinsic value.

Value is not a quality of an object but rather a subjective judgement of an agent evaluating said object, thus the concept of "intrinsic value" makes no sense. Which is a good thing, because otherwise trading wouldn't exist since at least one party would always be worse off afterwards, thus we'd be stuck raiding each other for ever.

I'm surprised so many Slashdot readers get this wrong. The Bitcoin Network (or BitNet for short) is designed to deliver payment transactions quickly and cheaply. It is made up of user software, mobile apps, a big database, P2P nodes that relay transactions, and custom hardware that verifies blocks of transactions. It was not designed to store value over long periods, so it is not surprising that it doesn't perform that function.

The number of accounting tokens in the database (which people refer to as bit

Interesting post, but how does that differ from conventional currency? Conventional currency can also be thought of as accounting tokens (for our assets and services) and they have no intrinsic value - any value is given by the network (society) and its perceived stability. It may have been designed as a currency's currency, but even then it can still behave as a currency. Similarly UPS labels, if popular enough, could be directly used as currency.

Digital currencies carry a risk, but so does any other type of financial transaction or investment. People rely on the perceived integrity of the "issuing" system, the circumstances around the use of the items, and so on. Even mainstream items carry the possibility of risk that people cannot predict or understand. In that light, a bitcoin might not be as secure as buying an ounce of gold and burying it in the backyard, but there's nothing to say someone might not invent a modern Philosopher's Stone and r

What if a Philosopher's Stone required 100KwH per ounce of gold produced?

That would actually be economical; if it only took 100KwH worth ~$20 to produce ~$1200 US worth of gold...... currently the only way to produce gold from other metals is to perform the conversion in a nuclear reactor. And it takes many thousands of terra watt hours to produce less than 0.1 of an ounce.

There spawned a couple of new exchange sites in India over the past few weeks. A few that I checked look legit, demanding some sort of official government documents for user identification, making it non-trivial for scammers to jump aboard the train. It is only natural that there is a warning, and those sites already had more or less the same warning on their frontpages. The fact that this warning is on a state level is a good think for bitcoin (and for potential traders) I think.

India has its issues, but it is good that -someone- is warning potential investors of the risks of BitCoin. Education is always important, especially the basics like be careful about one's wallet because it can be too easy to lose one's BTC stash forever if it isn't backed up or if a bad guy is able to open it.

I note that there are quite a few risks associated with CASH including:

* theft of physical wallets that are used to store CASH* absence of realistic application of frameworks to tackle customer problems, disputes and charge backs with CASH.* exposure to potential losses because of high volatility in value of the CASH currencies* legal and financial risks assocated with trusting strangers with your CASH,* and breach of anti-money laundering laws where people can carry CASH because of lack of complete information on tracking of CASH between anonymous random strangers.

so. wonderful. india's announcing something random about bitcoin. great! let's watch the value go up again just like it did in china as it comes to more peoples' attention. yay!

As much as bitcoin is a digital currency and can be stolen digitally, cash is a physical currency and can be stolen physically. Of course it's not the same. And hence you need to use appropriate means. In turn you could say that you can't simply put a gun to someone's head and demand from him to hand over his bitcoins in a physical way. If you have no means to access an electronic wallet, you cannot access or manipulate bitcoins, so bitcoins are intrinsically more safe against the average street mugger beca

* theft of physical wallets - the criminal justice system, the police and the courts. Compare that to Bitcoin - someone steals your wallet and you're FUCKED with no recourse to any recompense.* absence of realistic application of frameworks to tackle customer problems, disputes and charge backs with CASH - look up insurance, regulatory authorities and banking charters. What is there for Bitcoin? You're on your own.* exposure to potential losses because of hig

I just worry about the ever increasing times it takes to parse blockchains. This will become ever more an issue when coins get divided up into smaller and smaller chunks.

Yes, one can let an exchange go about that, but there is always the concern about how trustworthy any exchange can be. Banks are not any more trustworthy, but at least there are regulations and insurance on them so someone coughs up your cash if they go toes-up.

You can branch block chains off the central bitcoin one, and then use local transactions on the side chains. Assuming the side chains are evenly distributed, their size grows as the square root of the total number of transactions. You only need to store chains that you have any balance on.

Alternately, people can subscribe to servers hosting the block chain and doing nothing else. As long as there are a sufficient number of these distributed servers checking each other, you don't rely on a centralized tru

And before anyone asks the same question about gold or silver, gold has other uses, such as jewelry and electrical connector plating.

Saying gold price is driven by practical uses is like saying booze sales are driven by alcohol's usefulness as a disinfectant. It's stretching the truth way past the point where even Goatse would wince in sympathy. The only question left is what's driving it: psychological fixation on gold or worry about losing one's investment in it if Bitcoin takes some of its marketshare.

It's an accounting token in a big database of transactions. Demand to move money from place to place using the Bitcoin Network creates demand for the tokens. Because there are a limited number of tokens, when demand goes up, so does their unit price. But the tokens themselves are not a separate entity. They have no function without the database and network of which they are a part. Seen as a whole, the Network takes in money from a user at one end, and delivers money to someone else at the other end. A

Mining for bitcoins actually donated processing time to Folding at home and SETI... so instead of getting virtual currency for wasting compute cycles, we'd probably cure cancer and contact aliens instead.

It's possible to know the outcome of thousands of hands of blackjack. You will lose by a set margin within a few percentage points. It is not possible to prove ET doesn't exist. It is only possible to prove ET does exist, by finding one.

Nations like India, which have restrictions limiting women's ownership of land, have the highest per capital consumption rate of gold. Gold mining is the single most environmentally destructive man-made activity on the planet (toxics, carbon, and encroachment into rain forests). If families in India can pay dowry with Bitcoin, I'm all for it.

Mining Bitcoins isn't all that great either. It's getting more and more computionally intensive, which requires a lot of power, which means computers running on coal-burning power and being cooled by coal-burned power. There was an article here recently about the effect on the environment from Bitcoin mining, wasn't there?

It's getting more and more computionally intensive, which requires a lot of power, which means computers running on coal-burning power and being cooled by coal-burned power.

So are video games. All highly-ordered activity has waste. If you want the scientific reason, it's the 2nd law of thermodynamics. If you want a visual explanation, building a statue requires taking a pristine stone and chopping off "the waste" while creating the art. What's the environmental impact of credit card processing, by the way? Life produces waste. That's not an argument against life.

While it is getting more computationally intensive, the efficiency of the hardware has risen in parallel to keep the costs about the same. Electrically, it costs about the same to mine a coin now as it did years ago, but the output of a miner is now measured in gigahashes instead of megahashes.

Well, you got someone to mod it back down. But here's the article from The Hindu, published November 2013.

"Just one in 10 women whose parents own agricultural land inherit any land, a soon-to-be-published study by U.N. Women and the land rights advocacy group Landesa has shown. Eight years after women were given equal inheritance rights in law, dowry is still seen as ‘adequate’ recompense for inheritance, the study finds."
http://www.thehindu.com/news/national/just-one-in-10-women-inherits-la [thehindu.com]

The reason women do not inherit land from farming families is very complex...neither you understand, neither The Hindu understand.
Also, as a society you can only create a legal and policy framework for change. For example - you can only create a law which bans types of 'racism' - not actually eradicate racism - that's up to the people who practice.
And the solution you are giving, using Bitcoin as dowry is the most boneheaded I have heard in my lifetime. My question remains - what the hell are you smoki

Nice explanation of why women don't inherit land. I stand corrected, as does TheHindu.com. I'm sure the UN is also wrong, and that giving gold to daughters is utterly unrelated to not giving farmland. Thanks.

Nations like India, which have restrictions limiting women's ownership of land, have the highest per capital consumption rate of gold. Gold mining is the single most environmentally destructive man-made activity on the planet (toxics, carbon, and encroachment into rain forests). If families in India can pay dowry with Bitcoin, I'm all for it.

Dowry is messed up, but I think they'd use cash, household items, and even animals before bitcoin.

Like.. wow. Ok, so the people handing out dowry payments overlaps with the industrialized, mechanized mining operations that you're referencing how exactly?

Realistically, the gold being PRODUCED today is more likely to wind up in some kind of electronic device than anything else. whereas the stuff being traded for daughters was probably dug out of the ground hundreds or thousands of years ago.